Americans are proving they know how to shop their way out of a crisis
During earnings season we tend to see sectors converging. Walmart, a pioneer for retailers, had a great quarter. But then Target surprised everyone with a 90% slump in quarterly earnings. What happened?
In short, inflation underscores a key difference between the two major retailers. People shop at Target for things they want; they buy what they need at Walmart. And right now almost everyone is cutting back on indulgence and sniffing out bargains for essentials.
Here’s the deal: On Tuesday, Walmart stock rose more than 5% after reporting better-than-expected sales. CEO Doug McMillon attributed this to lower fuel prices (giving customers more money to spend in-store), a strong start to the back-to-school season, and — key — an influx of wealthier shoppers (those who might normally be leaving). after tarzhay but looked for price cuts at Walmart instead).
Target followed with its earnings on Wednesday, and it was a much bleaker picture. Profits plummeted 90% in the second quarter, even after prices were cut. Its shares are down 3% in early trade.
Supporting this shift in spending is data released on Wednesday, which showed total US retail sales held steady in June-July, thanks in part to falling gas prices that gave people more money for everyday goods.
The upshot here is that Americans are still shopping — great news for an economy fueled by consumer spending — but they’re adjusting to a tighter budget.
As Walmart’s CEO put it, “Instead of higher-priced sausage products, customers are increasingly buying hot dogs and canned tuna or chicken.”
We’re seeing this in other industries as well: Planet Fitness, the national gym chain with a low monthly membership fee, is thriving as more people resume indoor training. But high-end boutique studios like SoulCycle are getting hammered.
WHY IT MATTERS
Through all of the pandemic-era economic upheaval, from lockdowns to a mad housing boom to shortages and staggering inflation, the American buyer has been resilient. And our collective, ingrained desire to buy stuff may well be the force keeping the economy afloat.
Taken together, this week’s retail earnings, including Home Depot’s record quarterly profit, show how consumer behavior is changing. But critically, it doesn’t fall off a cliff like one would expect in a typical downturn. This, coupled with continued strength in the labor market, reinforces the argument of many economists that the US is in fact not in a recession right now.
“No boom. But no recession either,” economist Ian Shepherdson tweeted, citing Wednesday’s retail sales.
FIGURE OF THE DAY: 10%
FOOD NEWS
When food news breaks, Nightcap is there for every last bite and crumb. But for today’s edition, we have to warn you: don’t read while eating. And maybe wait a few minutes if you’re reading on a full stomach because that might get ugly.
First: That keto diet monstrosity from the sociopaths at Papa John’s R&D, the pizza “bowl.”
I purposely put “bowl” in quotes there because this isn’t actually a bowl, but a cardboard tray loaded with pizza toppings. The highlight: no crust. Because… reasons? (I figured we all left the Atkins diet where it belonged in the ’90s? Or maybe this is a game for the gluten-averses, in which case I might suggest, like a gluten-free crust?)
In any case, the “Papa Bowl” comes in three variants: Garden Veggie, Chicken Alfredo and Italian Meats Trio. Good luck America.
Next: Say cheese.
The brand decided to capitalize on its renewed popularity and pull off some cheesy stunts, like the $15 Velveeta martini. The “Veltini”.
Finally dessert…